How to Calculate Spread in Forex
An educational guide to spread in forex: definitions of Bid and Ask, calculation formulas, practical examples, the difference between fixed and variable spreads, ECN/Raw, the impact of news and liquidity, and the difference between commission and spread.
- Educational article
- ~10 min read
- BrokerLauncher content team
The spread is the gap between the buy and sell price and can shrink or widen depending on market conditions.
Spread is one of the most fundamental trading costs in forex, crypto, and other financial markets. Spread simply means the difference between the buy price (Ask) and the sell price (Bid) of an instrument at a given moment in the market.
In this article, we will look — in an educational way — at what the spread is, how spread is calculated, what types exist, how it affects trading cost, and why spreads may widen during economic news or low liquidity.
This article is intended solely to educate about trading concepts and should not be interpreted as financial or investment advice, nor as a guarantee of any trading conditions.
What is spread?
Spread is the gap between an asset's buy and sell price. When you look at the EUR/USD symbol in a trading platform, you see two prices: the Bid price at which you can sell, and the Ask price at which you can buy. Their difference is the spread.
Cost of entering a trade
The spread is deducted from the trader's account at the moment of entry; the position opens immediately at a slight loss equal to the spread.
Liquidity indicator
Spreads are usually lower on highly liquid instruments and higher on illiquid ones.
Depends on execution model
Spread depends on account type (Standard, ECN/Raw), liquidity provider, and pricing quality.
How do Bid and Ask work?
Two-way quoting is the foundation of every financial market. At each moment, a buy price and a sell price are streamed to the broker by a Liquidity Provider or Market Maker.
Bid (sell price)
The highest price buyers in the market are willing to pay for the asset. When you hit Sell, your order executes at this price.
Ask (buy price)
The lowest price sellers in the market are willing to accept. When you hit Buy, your order executes at this price.
Ask > Bid always holds; this difference — the spread — is in practice part of the broker/LP revenue and part of the trader's entry cost.
Spread calculation formula
The basic spread formula is very simple:
Spread = Ask − Bid
The difference is expressed in pips or points; on most forex pairs that means 4 decimal places plus an extra Pipette digit.
To calculate the dollar cost of the spread on a trade, use this formula:
Cost = Spread (pip) × Pip Value × Lot Size
Pip Value varies depending on the symbol, contract size, and account currency.
Practical example on EUR/USD
1.10500
1.10512
1.2 pips
Cost for 1 standard lot of EUR/USD
On EUR/USD, the pip value for 1 standard lot (100,000 units) is typically USD 10. Therefore:
Cost = 1.2 × 10 × 1 = 12 USD
Example on gold (XAU/USD)
On gold, spread is typically expressed in dollars/cents (e.g. 30 cents = USD 0.30). For 1 standard lot (100 ounces), the cost of a 30-cent spread is:
Cost = 0.30 × 100 = 30 USD
This figure can multiply several times during heavy volatility.
Types of spread in forex
Spread is more than a number; the type of spread depends on the account structure, the LP, and the broker's execution model:
Fixed spread
A predefined spread that usually remains constant under normal market conditions.
Note: Common in Market Maker accounts; during volatility, requotes or slippage may occur.
Variable (floating) spread
Spread changes in real time based on supply/demand and market liquidity.
Note: Usually lower during peak market hours and higher during news/illiquidity.
ECN / Raw spread
Spread is streamed directly from the liquidity provider; usually very close to zero.
Note: This model usually comes with commission; real cost = spread + commission.
Market Maker spread
The broker acts as counterparty and sets the spread itself.
Note: Can offer stable fixed spreads, but has a potential conflict of interest.
Fixed vs variable spread
Neither is absolutely "better." The choice depends on trading style, tolerance for spread volatility, and the broker's execution model.
| Criterion | Fixed spread | Variable spread |
|---|---|---|
| Spread behaviour | Usually stays constant under normal conditions. | Changes based on liquidity and volatility. |
| Around news | May trigger requotes or widen. | Usually widens significantly. |
| Pricing transparency | Relatively simple for calculating a fixed cost. | Closer to real market/LP pricing. |
| Execution model | Mostly Market Maker / Dealing Desk. | Mostly STP / ECN / Hybrid. |
| Suitable for | New traders who need a predictable cost. | Experienced traders familiar with execution quality and liquidity. |
Spread behaviour
Fixed: Usually stays constant under normal conditions.
Variable: Changes based on liquidity and volatility.
Around news
Fixed: May trigger requotes or widen.
Variable: Usually widens significantly.
Pricing transparency
Fixed: Relatively simple for calculating a fixed cost.
Variable: Closer to real market/LP pricing.
Execution model
Fixed: Mostly Market Maker / Dealing Desk.
Variable: Mostly STP / ECN / Hybrid.
Suitable for
Fixed: New traders who need a predictable cost.
Variable: Experienced traders familiar with execution quality and liquidity.
How spread affects trading cost
Spread is the first entry cost of any trade. This table shows the approximate impact of spread on cost across a few common symbols:
| Symbol | Size (lots) | Hypothetical spread | Approx. cost |
|---|---|---|---|
| EUR/USD | 1.00 | 1.0 pip | ≈ USD 10 |
| EUR/USD | 0.10 | 1.0 pip | ≈ USD 1 |
| GBP/USD | 1.00 | 1.5 pip | ≈ USD 15 |
| XAU/USD | 1.00 | 30 cents | ≈ USD 30 |
| BTC/USD | 1.00 | Tens of dollars* | Depends on exchange and volatility |
EUR/USD · 1.00 lots
Spread: 1.0 pip
Approx. cost: ≈ USD 10
EUR/USD · 0.10 lots
Spread: 1.0 pip
Approx. cost: ≈ USD 1
GBP/USD · 1.00 lots
Spread: 1.5 pip
Approx. cost: ≈ USD 15
XAU/USD · 1.00 lots
Spread: 30 cents
Approx. cost: ≈ USD 30
BTC/USD · 1.00 lots
Spread: Tens of dollars*
Approx. cost: Depends on exchange and volatility
* These figures are illustrative only; the actual spread depends on the broker, account type, trading hours, and market conditions.
Spread vs commission
A common mistake: "low spread account = lower cost." But on ECN/Raw accounts, alongside a low spread you also pay a per-lot commission. Real cost = spread + commission.
| Criterion | Spread | Commission |
|---|---|---|
| Structure | A cost embedded inside the Bid/Ask price. | A fixed or volume-based fee, separate from price. |
| Transparency | Sometimes less transparent because it sits inside the price. | More transparent; recorded directly on the trade report. |
| Typical account | Standard and Market Maker accounts. | ECN / Raw / Pro accounts. |
| Total cost | Spread only. | Spread + commission (both together). |
| Suitable for | Beginner traders with small volume. | High-volume traders, scalpers, and professionals. |
Structure
Spread: A cost embedded inside the Bid/Ask price.
Commission: A fixed or volume-based fee, separate from price.
Transparency
Spread: Sometimes less transparent because it sits inside the price.
Commission: More transparent; recorded directly on the trade report.
Typical account
Spread: Standard and Market Maker accounts.
Commission: ECN / Raw / Pro accounts.
Total cost
Spread: Spread only.
Commission: Spread + commission (both together).
Suitable for
Spread: Beginner traders with small volume.
Commission: High-volume traders, scalpers, and professionals.
Why spreads widen during news and low liquidity
News and volatility
During NFP/CPI/FOMC, LPs quote more conservatively to manage risk and spreads widen.
Reduced liquidity
In early Asian hours, on major-market holidays, or during a crisis, liquidity falls and spreads widen.
Market opening hours
At the start of the week or on opening gaps, until the initial price stabilises, spreads may be larger.
When spreads widen, the chance of slippage and stop-loss hunting also rises. Sizing positions carefully and avoiding impulsive entries in the minutes around news is a common risk-management principle.
What is slippage in trading?
How to reduce spread cost
You cannot reduce the spread to zero, but a few simple approaches can lower its cost over time:
Pick the right account type
ECN/Raw accounts have lower spreads but charge commission; calculate total cost before choosing.
Time your trades
Peak market hours (London/New York overlap) usually offer the tightest spreads on major pairs.
Avoid news windows
The minutes around major news releases are among the widest-spread moments of the market.
VPS and connection quality
A VPS doesn't directly lower spreads but improves order execution quality (slippage).
Liquid symbols
EUR/USD and other majors usually have lower spreads than crosses and exotics.
Volume management
Spread is almost negligible on small volume but can become a serious part of cost at high volume.
Cost: the first and most important layer of a trade
Spread is the first cost layer of every trade and is calculated with the simple formula Ask − Bid. The type of spread, pip value, lot size, liquidity, news, and the broker's execution model all affect the final cost. A precise grasp of this concept helps a trader assess the real cost of a trade — knowingly — before entry.
Frequently asked questions about forex spread
What is slippage in trading?
Slippage and how it relates to spread and execution quality.
Liquidity Provider
The LP's role in pricing quality and market depth.
Instrument grouping
Symbol Group structure and its effect on spread and risk.
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